IT Strategy

SaaS CRM Disadvantages

October 29, 2007 by Raj Sheelvant

The biggest advantage of SaaS CRM is that, very little in house resources are utilized in deploying, maintaining and integrating the CRM application. The vendor does most of the work and thus SaaS delivery model looks tempting from a financial perspective. As it turns out it is not advantageous to have SaaS delivery model for the CRM application in every scenario.  Depending on the type of firm’s competitive strategy, it will be disadvantageous to implement SaaS CRM.  

According to Porter’s Generic Competitive Strategies, there are 2 types of Competitive Advantages a firm can possess: Cost Leadership or Differentiation. When the organization uses Cost Leadership Strategies, the sole objective is to become the low cost producer in the industry. This is the model where the organization goes after only the ‘price sensitive’ customers. The CRM in this case can be ‘plain vanilla’ application. Hence under this circumstance SaaS CRM can be used successfully. In fact if the number of customers is very large, the organization can focus on streamlining SCM and other internal business process to maximize throughput. CRM in this case can even be outsourced/offshored because now it can be a non-core activity. Firm can get away by having very rudimentary CRM process.

But if the competitive advantage of the firm is based on Differentiation Strategy, then the firm seeks to be unique in its industry along the facet that it thinks its widely valued by the customers. So in this case ability to understand the customers is very vital. Customer Segmentation and Relationship Management is a critical factor in differentiating the product or the service. It is extremely important that the CRM needs to integrate not only with other systems (SCM and ERP) but also with people and processes. SaaS CRMs have very weak integration ability (in most cases additional connector software needs to be purchased or customized connector needs to be created via Web Services). SaaS CRM also cannot be customized for the unique business processes. Now, SaaS CRM begins to loose its advantage for the organization that has unique Customer Relation business processes.

SaaS CRM always works for the organization with Cost Leadership Competitive Strategy but rarely works for the organizations with Differentiation Competitive Strategy.

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